The real problem in the financial industry is “residing on the balance sheets of AIG and Lehman Brothers and others where the losses were tens and hundreds of billions of dollars on mismarked positions,” James Chanos, president and founder of Kynikos Associates, said.

“Where is the Justice Department on this? Where are the state attorney generals?” Chanos asked. “Is it just too difficult? Is that their answer? I just don’t know,” he wondered.

AIG received an $85 billion bailout from the Fed to stay afloat while Lehman was forced to declare bankruptcy in 2008, triggering a global financial crisis.

Although a Senate financial regulatory bill appears to be headed to passage within days, Chanos said the Sarbanes-Oxley bill, passed in 2002, should have discouraged much of the fraudulent activity. The law required CEOs and CFOs to take responsibility for corporate financial reports.

“Until we find out what happened (with AIG and Lehman), we’re not going to be able to reform the system,” Chanos said.